State Bank of India (Q4 FY14)

India Infoline News Service | Mumbai |

SBI’s cumulative domestic NIM stayed flat qoq at 3.49% while represented a material decline of 17bps yoy which is largely explained by the shift in loan mix. Cumulative international NIM declined to 1.42% from 1.49% in the previous quarter.

CMP Rs2,769, Target Rs3,200, Upside 15.6% 
  • Domestic loan growth decelerates to 13.6% yoy; growth to pick-up over FY14-16 

  • Robust growth in retail term deposits; NIM has bottomed-out, to start inching-up from H2 FY15

  • Fee growth sustained at an improved level; operating profit at an all-time high 

  • Asset quality improves sharply on the back of lower slippages and higher recoveries and upgradations; outlook is improving 

  • Revise upwards FY15/16 earnings and BV estimates substantially; upgrade rating to BUY and raise 9-12 month price target to Rs3,200

Result table
(Rs mn) Q4 FY14 Q3 FY14 % qoq Q4 FY13 % yoy
Total Interest Income 358,576 348,705 2.8 307,842 16.5
Interest expended (229,548) (222,299) 3.3 (197,058) 16.5
Net Interest Income 129,028 126,405 2.1 110,784 16.5
Other income 65,857 41,903 57.2 55,467 18.7
Total Income 194,885 168,308 15.8 166,251 17.2
Operating expenses (88,606) (92,123) (3.8) (88,645) (0.0)
Provisions (58,911) (41,496) 42.0 (41,810) 40.9
PBT 47,368 34,689 36.5 35,797 32.3
Tax (16,960) (12,345) 37.4 (2,804) 504.8
Reported PAT 30,408 22,344 36.1 32,992 (7.8)
EPS 162.9 130.7 24.7 192.9 (15.6)

(Rs mn) Q4 FY14 Q3 FY14 chg qoq Q4 FY13 chg yoy
Cum NIM (%) - Overall 3.2 3.2 (0.0) 3.3 (0.2)
Cum NIM (%) - Domestic 3.5 3.5 - 3.7 (0.2)
Cum NIM (%) - Intl 1.4 1.5 (0.1) 1.5 (0.1)
YoA (%) – Domestic 10.5 10.4 0.1 10.8 (0.3)
CoD (%) – Domestic 6.3 6.3 0.0 6.3 0.0
CASA (%) 44.4 43.9 0.5 46.5 (2.1)
C/D (%) 86.8 85.1 1.7 86.9 (0.2)
Cost to Income (%) 2.0 1.2 0.8 1.6 0.4
RoA (%) 0.7 0.5 0.2 0.8 (0.1)
CAR (%) 12.4 11.6 0.9 12.9 (0.5)
Gross NPA (%) 5.0 5.7 (0.8) 4.8 0.2
Net NPA (%) 2.6 3.2 (0.7) 2.1 0.5
Source: Company, India Infoline Research

Domestic loan growth decelerates to 13.6% yoy; growth to pick-up over FY14-16 

SBI’s domestic credit growth decelerated to 13.6% yoy from 15.5% yoy in the previous quarter driven by a sharp growth moderation in mid corporate (from 23% yoy to 11% yoy), Agri (from 23% yoy to 11% yoy) and Retail segments (from 16% yoy to 13% yoy). SME portfolio of the bank continues to de-grow while the large corporate segment witnessed growth acceleration from 27% yoy in Q3 FY14 to 38% yoy in Q4 FY14. Over the past many quarters, SBI has been cautious and selective in its growth approach in mid corporate and SME segments while pushing growth in large corporate (focus on better rated loans) and retail segments. The combined share of mid corporate and SME loans within domestic advances has declined by 340bps since Q4 FY14 while the contribution of large corporate and retail loans has increased by 430bps. Within retail portfolio, growth in home loans was healthy at 18% yoy while growth in auto loans came-off sharply to 13% yoy (21% yoy in Q3 FY14) which could be attributable to persistent weakness in vehicle industry volume growth. We believe that SBI’s domestic loan growth is likely to improve henceforth on the back of economic recovery. Based on the current capitalization level (9.3% Tier-1 capital) and an expected sharp improvement in internal capital generation, we estimate SBI’s loan CAGR at 18.5% over FY14-16. 

Robust growth in retail term deposits; NIM has bottomed-out

Domestic deposits grew ahead of advances at 15.6% yoy. The retail term deposits grew by robust 25% yoy and comprised 45.5% of total domestic deposits as compared to 41.9% in Q4 FY13. Savings deposits grew at a decent pace of 13% yoy but its share in domestic deposits declined by 100bps qoq to 36%. With a steep 28% qoq increase in Current deposits, the quarter-end CASA ratio improved by 50bps qoq to 44.4%.

SBI’s cumulative domestic NIM stayed flat qoq at 3.49% while represented a material decline of 17bps yoy which is largely explained by the shift in loan mix. Cumulative international NIM declined to 1.42% from 1.49% in the previous quarter. On the back of this, the cumulative global NIM also witnessed a slight dip qoq to 3.17%. Domestic cumulative yield on advances improved for a third successive quarter as the delinquency ratio has been lower than 5.2% witnessed in Q1 FY14. Domestic cumulative cost of deposits continued to inch-up on account of increasing share of retail TDs, the average cost of which would have marginally increased due to higher re-pricing.  SBI’s domestic NIM is likely to remain stable in the near term before starting to gradually improve on account of decline in deposit cost, improvement in pricing power, incremental shift in loan mix towards better-yielding SME & mid-corporate segments and moderation in the pace of impaired assets creation. 

Fee growth sustained at an improved level; operating profit at an all-time high 

Core fee income growth stayed at an improved level of 15% yoy (16% yoy in Q3 FY14) with growth revival seen in almost all major fee streams. Bank’s trading profit was higher at Rs4bn as against queRs2.4bn in the previous quarter. Operating cost was stable yoy on account of higher base while it was also lower qoq due to one-off provisions worth more than Rs10bn in Q3 FY14. Consequently, the cost/income ratio improved sharply and the operating profit of the bank stood at an all-time high of Rs106bn, up 37% yoy.

Asset quality improves sharply on the back of lower slippages and higher recoveries and upgradations

Fresh slippages came in at Rs79.5bn, much lower than our estimate of Rs90bn. The delinquency ratio declined sharply to 2.7% from 4.1% in the previous quarter. About 87% of slippages during the quarter were contributed by mid corporate and SME segments; their contribution to slippages in Q1 FY14, Q2 FY14 and Q3 FY14 was at 49%, 71% and 81% respectively. However, the slippage ratio in SME segment has declined sharply in Q4 FY14 implying some moderation in stress. Delinquencies in large corporate, Retail and Agri segments continued to remain benign. On the back of substantial recoveries & upgrades worth Rs84bn (higher 48% yoy) and loan write-off of Rs57bn, the Gross NPLs declined by 9% qoq in absolute terms and 70bps qoq as a ratio to advances. Restructuring during the quarter was elevated, however, at Rs76bn (Rs39bn in Q3 FY14). Generation of robust operating profit enabled the bank to make higher NPL provisioning of Rs59bn (up 72% qoq and 48% yoy) and the annualized credit cost stood at 2%. Consequently, PCR improved by 460bps qoq to 62.9% and Net NPL level came-off to 2.6%. We believe that asset quality outlook is improving for the bank and the delinquencies in mid-corporate segment would start to moderate quickly.

Upgrade to BUY; Raise 9-12 month price target to Rs3,200

On the back of robust Q4 FY14 performance and improved macro outlook, we have raised our earnings/BV estimates of SBI substantially while also upgrading valuation of its subsidiaries. On stand-alone basis, we now expect SBI to post a strong 40% earnings growth and material RoA recovery of 30bps over FY14-16. Profitability improvement would be driven by NIM expansion, acceleration in non-interest income growth, restrained cost growth and moderation in credit cost. We upgrade our rating on the bank from ‘Market Performer’ to ‘BUY’ and raise our 9-12 month target price of Rs3,200.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Total operating income 603,661 678,350 792,531 958,595
yoy growth (%) 4.7 12.4 16.8 21.0
Operating profit (pre-prov) 310,817 321,090 399,545 508,626
Net profit 141,050 108,900 161,896 216,147
yoy growth (%) 20.5 (22.8) 48.7 33.5
 
EPS (Rs) 206.2 145.8 216.7 289.4
Adj.BVPS (Rs) 1,124.6 1,167.2 1,283.7 1,529.6
P/E (x) 13.4 19.0 12.8 9.6
P/BV (x) 2.5 2.4 2.2 1.8
ROE (%) 15.4 10.0 13.0 15.5
ROA (%) 1.0 0.6 0.8 0.9
Dividend yield (%) 1.5 1.1 1.4 1.8
CAR (%) 12.9 12.4 11.8 11.0
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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